11/11/2014
The fact that the serious crisis that has hit world economy and which, in line with some forecast economic indicators, such as IFO or ZEW, both referring to German economy, still has some time ahead of it, complicates a recovery of the Spanish economy exclusively relying on domestic demand. Thus, foreign demand and competitiveness are key elements that require special attention.
Answering questions like: Is the Spanish economy a competitive economy?, has it managed to improve its competitiveness as a result of the crisis?, if so, what are the factors that have helped improve competitiveness?, what can institutions and public agencies do to make Spain an increasingly competitive country?, this is the purpose of a short series of economic analysis documents devoted to the study of competitiveness, the factors on which it depends, and the policies to promote it.
When speaking of competitiveness, it can be done from two perspectives. Thus, it is possible to speak of internal competitiveness, which refers to the ability of companies to expand their market share in the domestic market; and external competitiveness, a broader and more complex concept, linked to the balance of trade and the country's ability to sell in foreign markets. It is this latter concept of competitiveness that deserves our attention.
Spain is a country traditionally characterised by the existence of a large trade deficit, revealing our dependence on the outside. But while there is a large deficit in the trade in goods, the service sector has always presented a surplus.
Balance on the current account of the Spanish economy
(Expressed in GDP percentage)
Source: Eurostat (2014)
Spain's external dependence has only been overcome, at least partially, in periods of crisis, in part due to our lower import capacity and partly due to the devaluations applied for competitive purposes by the different governments. The problem arose with the lax monetary policies implemented during the boost period, which favoured the imports and indebtedness of the Spanish economy, and because the single currency did not allow us to apply, during the crisis, the traditional devaluations that were adopted in 1967, 1976, 1982 and 1992. This raises the question about which factors have favoured the recovery witnessed in the external sector of the Spanish economy.
In this regard, it should be noted that the recovery of the external sector has been achieved thanks to the growth of exports and the reduction of imports, in the goods component rather than the services component. In short, the recovery of the external balance requires the improvement of the economic competitiveness, regardless of the way in which this is achieved. However, in the absence of devaluations, it is necessary to analyse how Spain has managed to regain its competitiveness.
In the next documents we'll see the role played by labour productivity, labour costs, real exchange rate, inflation spreads, firm size, and flexibility of the labour market and the goods market, among others, in the recovery process of the Spanish economy's competitiveness.
However, before closing this first chapter, one could ask whether the recovery of competitiveness has led, in the case of the Spanish economy, not only to an increase in exports, but also an increase of its market share. In this regard it should be noted that although the competitive and exports improvement has not helped us to gain market share in the world market, it has allowed us, at least in the case of goods, although not of services, to lose less market share than other surrounding countries. Hence, better results are only achieved by the United States, which increases its share since 2007, and Portugal, Greece and Denmark which lose share, although less than Spain.
